UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 000-50511  Commission File Number
 UNITED AMERICA INDEMNITY, LTD.
  Cayman Islands
    
    98-0417107(State or other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)
 WALKER HOUSE, 87 MARY STREET
KYI  9002
GEORGE TOWN, GRAND CAYMAN
CAYMAN ISLANDS
 (345) 949-0100
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets As of March 31, 2008 (Unaudited) and December 31, 2007
    
    
    1Consolidated Statements of Operations Quarters Ended March 31, 2008 and 2007 (Unaudited)
    
    
    2Consolidated Statements of Comprehensive Income Quarters Ended March 31, 2008 and 2007 (Unaudited)
    
    
    3Consolidated Statements of Changes in Shareholders Equity As of March 31, 2008 (Unaudited) and December 31, 2007
    
    
    4Consolidated Statements of Cash Flows Quarters Ended March 31, 2008 and 2007 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    33PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Changes in Securities and Use of Proceeds
    
    
    35Item 4. Submission of Matters to a Vote of Security Holders
    
    
    35Item 6. Exhibits
    
    
    35Signatures
    
    
    37
   1)
    
    United America Indemnity, we, us, and our refer to United America Indemnity, Ltd., an
exempted company incorporated with limited liability under the laws of the Cayman Islands, and
its U.S. and Non-U.S. Subsidiaries;
 2)
    
    our U.S. Subsidiaries refers to United America Indemnity Group, Inc., U.N. Holdings Inc.,
which was dissolved on May 31, 2006, Wind River Investment Corporation, which was dissolved on
May 31, 2006, AIS, Emerald Insurance Company, Penn-America Group, Inc., our U.S. Insurance
Operations and our Agency Operations;
 3)
    
    our U.S. Insurance Operations refers to the insurance and related operations conducted by
AIS subsidiaries, including American Insurance Adjustment Agency, Inc., International
Underwriters, LLC, J.H. Ferguson & Associates, LLC, the United National Insurance Companies
and the Penn-America Insurance Companies;
 4)
    
    our Predecessor Insurance Operations refers to Wind River Investment Corporation, which was
dissolved on May 31, 2006, AIS, American Insurance Adjustment Agency, Inc., Emerald Insurance
Company, the United National Insurance Companies, International Underwriters, LLC, and J.H.
Ferguson & Associates, LLC;
 5)
    
    the United National Insurance Companies refers to the insurance and related operations
conducted by United National Insurance Company and its subsidiaries, including Diamond State
Insurance Company, United National Casualty Insurance Company, and United National Specialty
Insurance Company;
 6)
    
    the Penn-America Insurance Companies refers to the insurance and related operations of
Penn-America Insurance Company, Penn-Star Insurance Company, and Penn-Patriot Insurance
Company;




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##### 



7)
    
    our Insurance Operations refers to the U.S. Insurance Operations;8)
    
    our Non-U.S. Insurance Operations refers to the insurance related operations of Wind River
Insurance Company (Barbados), Ltd. and Wind River Insurance Company, Ltd. prior to the
amalgamation, which occurred on September 30, 2006;9)
    
    Wind River Reinsurance refers to Wind River Reinsurance Company, Ltd. In September 2006,
Wind River Insurance Company (Barbados), Ltd. was redomesticated to Bermuda and renamed Wind
River Reinsurance Company, Ltd., at which time it was amalgamated with Wind River Insurance
Company, Ltd.;10)
    
    our Agency Operations refers to the operations of Penn Independent Corporation and its
subsidiaries, which were classified as discontinued operations as of September 30, 2006;11)
    
    our Non-U.S. Subsidiaries refers to Wind River Reinsurance, U.A.I. (Gibraltar) Limited,
which was liquidated on May 30, 2006, U.A.I. (Gibraltar) II Limited, which was liquidated on
May 30, 2006, the Luxembourg Companies, U.A.I. (Ireland) Limited, and Wind River Services,
Ltd.;12)
    
    our Reinsurance Operations refers to the reinsurance and related operations of Wind River
Reinsurance;13)
    
    the Luxembourg Companies refers to U.A.I. (Luxembourg) I S.à r.l., U.A.I. (Luxembourg) II
S.à r.l., U.A.I. (Luxembourg) III S.à r.l., U.A.I. (Luxembourg) IV S.à r.l., U.A.I.
(Luxembourg) Investment S.à r.l., and Wind River (Luxembourg) S.à r.l.;14)
    
    AIS refers to American Insurance Service, Inc.;15)
    
    United National Group refers to the United National Insurance Companies and Emerald
Insurance Company;16)
    
    Penn-America Group refers to Penn-America Group, Inc. and the Penn-America Insurance
Companies;17)
    
    Penn-America refers to our product classification that includes property and general
liability products for small commercial businesses distributed through a select network of
wholesale general agents with specific binding authority;18)
    
    United National refers to our product classification that includes property, general
liability, and professional lines products distributed through program administrators with
specific binding authority;19)
    
    Diamond State refers to our product classification that includes property, general
liability, and professional lines products distributed through wholesale brokers and program
administrators with specific binding authority;20)
    
    the Statutory Trusts refers to United National Group Capital Trust I, United National Group
Capital Statutory Trust II, and Penn-America Statutory Trust II;21)
    
    Fox Paine & Company refers to Fox Paine & Company, LLC and affiliated investment funds;22)
    
    GAAP refers to accounting principles generally accepted in the United States of America;
and23)
    
    $ or dollars refers to U.S. dollars.




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Balance Sheets
  (Unaudited)March 31, 2008
    
    
    December 31, 2007ASSETSBonds:Available for sale securities, at fair value
(amortized cost: $1,310,425 and $1,356,439)
    
    $
    1,335,231
    
    
    $
    1,370,566Preferred shares:Available for sale securities, at fair value
(cost: $13,948 and $11,802)
    
    
    13,759
    
    
    
    11,883Common shares:Available for sale securities, at fair value
(cost: $62,979 and $61,032)
    
    
    69,431
    
    
    
    73,794Other invested assetsAvailable for sale securities, at fair value
(cost: $24,563 and $24,563)
    
    
    62,330
    
    
    
    64,539Total investments
    
    
    1,480,751
    
    
    
    1,520,782Cash and cash equivalents
    
    
    284,010
    
    
    
    244,321Agents balances, net
    
    
    58,471
    
    
    
    64,719Reinsurance receivables
    
    
    690,005
    
    
    
    719,706Accrued investment income
    
    
    12,559
    
    
    
    12,820Deferred federal income taxes
    
    
    8,668
    
    
    
    8,219Deferred acquisition costs
    
    
    45,507
    
    
    
    52,505Goodwill
    
    
    84,246
    
    
    
    84,246Intangible assets
    
    
    22,268
    
    
    
    22,520Prepaid reinsurance premiums
    
    
    26,848
    
    
    
    29,218Other assets
    
    
    14,964
    
    
    
    16,116Total assets
    
    $
    2,728,297
    
    
    $
    2,775,172LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Unpaid losses and loss adjustment expenses
    
    $
    1,494,816
    
    
    $
    1,503,237Unearned premiums
    
    
    194,901
    
    
    
    228,363Federal income taxes payable
    
    
    2,061
    
    
    
    3,455Ceded balances payable
    
    
    15,771
    
    
    
    15,758Contingent commissions
    
    
    5,718
    
    
    
    9,600Notes and debentures payable
    
    
    137,531
    
    
    
    137,602Other liabilities
    
    
    35,209
    
    
    
    40,881Total liabilities
    
    
    1,886,007
    
    
    
    1,938,896Commitments and contingencies (Note 9)
    
    
    
    
    
    
    Shareholders equity:Common shares, $0.0001 par value, 900,000,000
common shares authorized; Class A common shares
issued: 24,822,125 and 24,770,507, respectively;
Class A common shares outstanding: 22,049,542
and 22,316,420, respectively; Class B common
shares issued and outstanding: 12,687,500
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    521,307
    
    
    
    519,980Accumulated other comprehensive income
    
    
    43,556
    
    
    
    40,172Retained earnings
    
    
    331,982
    
    
    
    324,542Class A common shares in treasury, at cost: 2,772,583 and 2,454,087 shares, respectively
    
    
    (54,559
    )
    
    
    (48,422
    )Total shareholders equity
    
    
    842,290
    
    
    
    836,276Total
    
    $
    2,728,297
    
    
    $
    2,775,172
  1




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Operations
  (Unaudited)Quarter Ended March 31,2008
    
    
    2007Revenues:Gross premiums written
    
    $
    99,062
    
    
    $
    152,536Net premiums written
    
    $
    81,964
    
    
    $
    134,055Net premiums earned
    
    $
    113,057
    
    
    $
    138,437Net investment income
    
    
    17,786
    
    
    
    18,868Net realized investment gains (losses)
    
    
    (1,070
    )
    
    
    225Total revenues
    
    
    129,773
    
    
    
    157,530Losses and Expenses:Net losses and loss adjustment expenses
    
    
    76,650
    
    
    
    81,841Acquisition costs and other underwriting expenses
    
    
    38,195
    
    
    
    42,882Corporate and other operating expenses
    
    
    3,934
    
    
    
    3,564Interest expense
    
    
    2,539
    
    
    
    2,905Income before income taxes
    
    
    8,455
    
    
    
    26,338Income tax expense
    
    
    565
    
    
    
    4,074Income before equity in net income (loss) of
partnership
    
    
    7,890
    
    
    
    22,264Equity in net income (loss) of partnership, net of tax
    
    
    (443
    )
    
    
    170Income before discontinued operations
    
    
    7,447
    
    
    
    22,434Discontinued operations, net of tax
    
    
    (7
    )
    
    
    159Net income
    
    $
    7,440
    
    
    $
    22,593Per share data:Income from continuing operations:Basic
    
    $
    0.21
    
    
    $
    0.61Diluted
    
    $
    0.21
    
    
    $
    0.60Discontinued operations:Basic
    
    $
    0.00
    
    
    $
    0.00Diluted
    
    $
    0.00
    
    
    $
    0.00Net income:Basic
    
    $
    0.21
    
    
    $
    0.61Diluted
    
    $
    0.21
    
    
    $
    0.60Weighted-average number of shares outstanding:Basic
    
    
    34,700,928
    
    
    
    37,112,783Diluted
    
    
    34,953,554
    
    
    
    37,521,712
  2




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Comprehensive Income
  (Unaudited)Quarter Ended March 31,2008
    
    
    2007Net income
    
    $
    7,440
    
    
    $
    22,593Other comprehensive income, net of tax:Unrealized gains on securities:Unrealized holding gains arising during period
    
    
    2,684
    
    
    
    2,810Less: Reclassification adjustment for gains
(losses) included in net income
    
    
    (700
    )
    
    
    146Other comprehensive income, net of tax
    
    
    3,384
    
    
    
    2,664Comprehensive income, net of tax
    
    $
    10,824
    
    
    $
    25,257
  3




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Changes in Shareholders Equity
  (Unaudited)Quarter Ended
    
    
    Year EndedMarch 31, 2008
    
    
    December 31, 2007Number of Class A common shares:Number at beginning of period
    
    
    24,770,507
    
    
    
    24,507,919Common shares issued under share incentive plans
    
    
    41,155
    
    
    
    243,253Common shares issued to directors
    
    
    10,463
    
    
    
    19,335Number at end of period
    
    
    24,822,125
    
    
    
    24,770,507Number of Class B common shares:Number at beginning of period
    
    
    12,687,500
    
    
    
    12,687,500Number at end of period
    
    
    12,687,500
    
    
    
    12,687,500Par value of Class A common shares:Balance at beginning of period
    
    $
    3
    
    
    $
    3Balance at end of period
    
    $
    3
    
    
    $
    3Par value of Class B common shares:Balance at beginning of period
    
    $
    1
    
    
    $
    1Balance at end of period
    
    $
    1
    
    
    $
    1Additional paid-in capital:Balance at beginning of period
    
    $
    519,980
    
    
    $
    515,357Contributed capital from Class A common shares
    
    
    
    
    
    
    1,002Share compensation plans
    
    
    1,327
    
    
    
    3,621Balance at end of period
    
    $
    521,307
    
    
    $
    519,980Accumulated other comprehensive income, net of
deferred income tax:Balance at beginning of period
    
    $
    40,172
    
    
    $
    22,580Other comprehensive income
    
    
    3,384
    
    
    
    17,888Adoption of SFAS 155
    
    
    
    
    
    
    (296
    )Balance at end of period
    
    $
    43,556
    
    
    $
    40,172Retained earnings:Balance at beginning of period
    
    $
    324,542
    
    
    $
    225,329Adoption of SFAS 155
    
    
    
    
    
    
    296Net income
    
    
    7,440
    
    
    
    98,917Balance at end of period
    
    $
    331,982
    
    
    $
    324,542Number of Treasury Shares:Number at beginning of period
    
    
    2,454,087
    
    
    
    Class A common shares purchased
    
    
    318,496
    
    
    
    2,454,087Number at end of period
    
    
    2,772,583
    
    
    
    2,454,087Treasury Shares, at cost:Balance at beginning of period
    
    $
    (48,422
    )
    
    $
    Class A common shares purchased, at cost
    
    
    (6,137
    )
    
    
    (48,422
    )Balance at end of period
    
    
    (54,559
    )
    
    $
    (48,422
    )Total shareholders equity
    
    $
    842,290
    
    
    $
    836,276
  4




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UNITED AMERICA INDEMNITY, LTD.
 
 Consolidated Statements of Cash Flows
  (Unaudited)Quarter Ended March 31,2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    7,440
    
    
    $
    22,593Adjustments to reconcile net income to net cash provided by
operating activities:Amortization of trust preferred securities issuance costs
    
    
    66
    
    
    
    65Amortization and depreciation
    
    
    252
    
    
    
    254Restricted stock expense
    
    
    1,046
    
    
    
    861Deferred federal income taxes
    
    
    596
    
    
    
    1,093Amortization of bond premium and discount, net
    
    
    655
    
    
    
    94Net realized investment (gains) losses
    
    
    1,070
    
    
    
    (225
    )Equity in net (income) loss of partnerships
    
    
    443
    
    
    
    (170
    )Changes in:Agents balances
    
    
    6,248
    
    
    
    1,961Reinsurance receivables
    
    
    29,701
    
    
    
    33,777Unpaid losses and loss adjustment expenses
    
    
    (8,421
    )
    
    
    (2,303
    )Unearned premiums
    
    
    (33,462
    )
    
    
    (6,478
    )Ceded balances payable
    
    
    13
    
    
    
    1,186Other assets and liabilities, net
    
    
    (5,322
    )
    
    
    (6,216
    )Contingent commissions
    
    
    (3,882
    )
    
    
    (4,984
    )Prepaid reinsurance premiums
    
    
    2,370
    
    
    
    2,098Federal income taxes (receivable) payable
    
    
    (1,394
    )
    
    
    2,920Deferred acquisition costs
    
    
    6,998
    
    
    
    (355
    )Net cash provided by operating activities
    
    
    4,417
    
    
    
    46,171Cash flows from investing activities:Proceeds from sale of bonds
    
    
    70,694
    
    
    
    27,464Proceeds from sale of stocks
    
    
    7,312
    
    
    
    8,957Proceeds from maturity of bonds
    
    
    8,137
    
    
    
    29,500Purchase of bonds
    
    
    (33,058
    )
    
    
    (59,117
    )Purchase of stocks
    
    
    (11,886
    )
    
    
    (8,507
    )Net cash provided by (used for) investing activities
    
    
    41,199
    
    
    
    (1,703
    )Cash flows from financing activities:Borrowing under credit facilities
    
    
    
    
    
    
    6Repayments of credit facilities
    
    
    
    
    
    
    (1,229
    )Proceeds from exercises of stock options
    
    
    324
    
    
    
    1,405Tax benefits (expense) associated with SFAS 123R
    
    
    (43
    )
    
    
    148Purchase of Class A common shares
    
    
    (6,137
    )
    
    
    Principal payments of term debt
    
    
    (71
    )
    
    
    (266
    )Net cash provided by (used for) financing activities
    
    
    (5,927
    )
    
    
    64Net change in cash and cash equivalents
    
    
    39,689
    
    
    
    44,532Cash and cash equivalents at beginning of period
    
    
    244,321
    
    
    
    273,745Cash and cash equivalents at end of period
    
    $
    284,010
    
    
    $
    318,277
  5




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UNITED AMERICA INDEMNITY, LTD.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Principles of Consolidation and Basis of Presentation
       2. Investments
   6




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Gross Unrealized LossesCost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greater(Dollars in
    
    Number of
    
    
    Estimated
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    than Onethousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    Year (1)Bonds
    
    
    184
    
    
    $
    299,385
    
    
    $
    304,882
    
    
    $
    5,497
    
    
    $
    1,946
    
    
    $
    756
    
    
    $
    2,795Preferred stock
    
    
    3
    
    
    
    5,907
    
    
    
    6,250
    
    
    
    343
    
    
    
    343
    
    
    
    
    
    
    
    Common stock
    
    
    44
    
    
    
    22,866
    
    
    
    26,855
    
    
    
    3,989
    
    
    
    2,283
    
    
    
    1,686
    
    
    
    20$
    9,829
    
    
    $
    4,572
    
    
    $
    2,442
    
    
    $
    2,815
 
 (1)
    
    At March 31, 2008, the Company had 96 bonds that were in an unrealized loss position for
greater than one year. The estimated fair value and amortized cost of these securities were
$117.5 million and $120.3 million, respectively. The Company has analyzed these securities
and has determined that they are not other than temporarily impaired. The Company has the
ability to hold these investments until maturity or until recovery. 100% of these securities
are investment grade.  Gross Unrealized LossesCost or
    
    
    
    
    
    
    Six
    
    
    Between
    
    
    Greater(Dollars in
    
    Number of
    
    
    Estimated
    
    
    Amortized
    
    
    
    
    
    
    Months or
    
    
    Seven Months
    
    
    than Onethousands)
    
    Securities
    
    
    Fair Value
    
    
    Cost
    
    
    Total
    
    
    Less
    
    
    and One Year
    
    
    Year (1)Bonds
    
    
    266
    
    
    $
    374,064
    
    
    $
    379,222
    
    
    $
    5,158
    
    
    $
    877
    
    
    $
    337
    
    
    $
    3,944Preferred stock
    
    
    1
    
    
    
    2,363
    
    
    
    2,500
    
    
    
    137
    
    
    
    137
    
    
    
    
    
    
    
    Common stock
    
    
    31
    
    
    
    15,714
    
    
    
    17,715
    
    
    
    2,001
    
    
    
    1,502
    
    
    
    499
    
    
    
    $
    7,296
    
    
    $
    2,516
    
    
    $
    836
    
    
    $
    3,944
 
 (1)
    
    At December 31, 2007, the Company had 215 bonds that were in an unrealized loss position for
greater than one year. The estimated fair value and amortized cost of these securities were
$293.8 million and $297.7 million, respectively. The Company has analyzed these securities
and has determined that they are not other than temporarily impaired. The Company has the
ability to hold these investments until maturity or until recovery. 100% of these securities
are investment grade.      7




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UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   Quarter Ended March 31,(Dollars in thousands)
    
    2008
    
    
    2007Bonds
    
    $
    
    
    
    $
    21Common stock
    
    
    79
    
    
    
    Total
    
    $
    79
    
    
    $
    21
  3. Fair Value Measurements
    
    
    Level 1  inputs utilize quoted prices (unadjusted) in active markets for identical
assets that the Company has the ability to access.
    
    Level 2  inputs utilize inputs other than quoted prices included in Level 1 that are
observable for the similar assets, either directly or indirectly.
    
    Level 3  inputs are unobservable inputs for the asset, and include situations where
there is little, if any, market activity for the asset.
  8




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##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
    Fair Value Measurements(Dollars in thousands)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalBonds:Obligations of state and political
subdivision
    
    $
    
    
    
    $
    232,323
    
    
    $
    
    
    
    $
    232,323Mortgage-backed and asset-backed
securities
    
    
    
    
    
    
    610,819
    
    
    
    1,995
    
    
    
    612,814U.S. treasury and agency obligations
    
    
    70,633
    
    
    
    119,889
    
    
    
    
    
    
    
    190,522Corporate notes
    
    
    
    
    
    
    299,572
    
    
    
    
    
    
    
    299,572Total bonds
    
    
    70,633
    
    
    
    1,262,603
    
    
    
    1,995
    
    
    
    1,335,231Preferred shares
    
    
    470
    
    
    
    13,289
    
    
    
    
    
    
    
    13,759Common shares
    
    
    68,225
    
    
    
    1,206
    
    
    
    
    
    
    
    69,431Other invested assets
    
    
    
    
    
    
    
    
    
    
    62,330
    
    
    
    62,330Cash and cash equivalents
    
    
    55,310
    
    
    
    228,700
    
    
    
    
    
    
    
    284,010Total invested assets
    
    $
    194,638
    
    
    $
    1,505,798
    
    
    $
    64,325
    
    
    $
    1,764,761
    Fair Value Measurements Using Level 3 InputsOtherInvested(Dollars in thousands)
    
    Bonds
    
    
    Assets
    
    
    TotalBeginning balance at January 1, 2008
    
    $
    2,376
    
    
    $
    64,539
    
    
    $
    66,915Total gains (losses) (realized / unrealized):Included in equity in net income (loss) of partnership
    
    
    
    
    
    
    (681
    )
    
    
    (681
    )Included in accumulated other comprehensive income
    
    
    (88
    )
    
    
    (1,528
    )
    
    
    (1,616
    )Sales
    
    
    (293
    )
    
    
    
    
    
    
    (293
    )Ending balance at March 31, 2008
    
    $
    1,995
    
    
    $
    62,330
    
    
    $
    64,325Gains (losses) for the quarter ended March 31, 2008
included in earnings attributable to the change in
unrealized losses relating to assets still held at March
31, 2008
    
    $
    
    
    
    $
    (681
    )
    
    $
    (681
    )
 9




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 4. Reinsurance
     Quarter Ended March 31,(Dollars in thousands)
    
    2008
    
    2007Earned premium
    
    $
    19,466
    
    
    $
    20,577Commissions
    
    
    3,423
    
    
    
    4,529Incurred losses
    
    
    5,371
    
    
    
    11,355
  Property
Catastrophe
 Property Excess of Loss
 Professional Liability Excess of Loss
 General Liability Excess of Loss
 10




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  5. Income Taxes
  Quarter Ended March 31, 2008:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    46,105
    
    
    $
    93,292
    
    
    $
    (40,335
    )
    
    $
    99,062Net premiums written
    
    $
    41,633
    
    
    $
    40,331
    
    
    $
    
    
    
    $
    81,964Net premiums earned
    
    $
    58,099
    
    
    $
    54,958
    
    
    $
    
    
    
    $
    113,057Net investment income
    
    
    10,554
    
    
    
    11,779
    
    
    
    (4,547
    )
    
    
    17,786Net realized investment losses
    
    
    (12
    )
    
    
    (920
    )
    
    
    (138
    )
    
    
    (1,070
    )Total revenues
    
    
    68,641
    
    
    
    65,817
    
    
    
    (4,685
    )
    
    
    129,773Losses and Expenses:Net losses and loss adjustment expenses
    
    
    38,079
    
    
    
    38,571
    
    
    
    
    
    
    
    76,650Acquisition costs and other
underwriting expenses
    
    
    23,101
    
    
    
    15,094
    
    
    
    
    
    
    
    38,195Corporate and other operating expenses
    
    
    2,604
    
    
    
    1,330
    
    
    
    
    
    
    
    3,934Interest expense
    
    
    
    
    
    
    7,086
    
    
    
    (4,547
    )
    
    
    2,539Income before income taxes
    
    $
    4,857
    
    
    $
    3,736
    
    
    $
    (138
    )
    
    $
    8,455
 Quarter Ended March 31, 2007:
    
    Non-U.S.
    
    
    U.S.(Dollars in thousands)
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    77,919
    
    
    $
    145,602
    
    
    $
    (70,985
    )
    
    $
    152,536Net premiums written
    
    $
    74,482
    
    
    $
    59,573
    
    
    $
    
    
    
    $
    134,055Net premiums earned
    
    $
    69,580
    
    
    $
    68,857
    
    
    $
    
    
    
    $
    138,437Net investment income
    
    
    10,403
    
    
    
    13,011
    
    
    
    (4,546
    )
    
    
    18,868Net realized investment gains
    
    
    
    
    
    
    246
    
    
    
    (21
    )
    
    
    225Total revenues
    
    
    79,983
    
    
    
    82,114
    
    
    
    (4,567
    )
    
    
    157,530Losses and Expenses:Net losses and loss adjustment expenses
    
    
    42,726
    
    
    
    39,115
    
    
    
    
    
    
    
    81,841Acquisition costs and other
underwriting expenses
    
    
    24,799
    
    
    
    18,414
    
    
    
    (331
    )
    
    
    42,882Corporate and other operating expenses
    
    
    1,547
    
    
    
    1,841
    
    
    
    176
    
    
    
    3,564Interest expense
    
    
    
    
    
    
    7,451
    
    
    
    (4,546
    )
    
    
    2,905Income before income taxes
    
    $
    10,911
    
    
    $
    15,293
    
    
    $
    134
    
    
    $
    26,338
 11




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  Quarter Ended March 31,2008
    
    
    2007% of Pre-
    
    
    
    
    
    
    % of Pre-(Dollars in thousands)
    
    Amount
    
    
    Tax Income
    
    
    Amount
    
    
    Tax IncomeExpected tax
provision at weighted
average rate
    
    $
    1,279
    
    
    
    15.1
    %
    
    $
    5,420
    
    
    
    20.6
    %Adjustments:Tax exempt interest
    
    
    (713
    )
    
    
    (8.4
    )
    
    
    (600
    )
    
    
    (2.3
    )Dividend exclusion
    
    
    (161
    )
    
    
    (1.9
    )
    
    
    (116
    )
    
    
    (0.4
    )Other
    
    
    160
    
    
    
    1.9
    
    
    
    (630
    )
    
    
    (2.4
    )Income tax expense
    
    $
    565
    
    
    
    6.7
    %
    
    $
    4,074
    
    
    
    15.5
    %
       6. Liability for Unpaid Losses and Loss Adjustment Expenses
  12




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
   Quarter Ended March 31,(Dollars in thousands)
    
    2008
    
    
    2007Unpaid losses and loss adjustment expenses at beginning of period
    
    $
    1,503,237
    
    
    $
    1,702,010Less: Gross reinsurance receivables on unpaid losses and loss
adjustment expenses
    
    
    702,353
    
    
    
    966,668Net balance at beginning of period
    
    
    800,884
    
    
    
    735,342Incurred losses and loss adjustment expenses related to:Current year
    
    
    76,650
    
    
    
    83,398Prior years
    
    
    
    
    
    
    (1,557
    )Total incurred losses and loss adjustment expenses
    
    
    76,650
    
    
    
    81,841Paid losses and loss adjustment expenses related to:Current year
    
    
    5,933
    
    
    
    4,274Prior years
    
    
    56,560
    
    
    
    41,974Total paid losses and loss adjustment expenses
    
    
    62,493
    
    
    
    46,248Net balance at end of period
    
    
    815,041
    
    
    
    770,935Plus: Gross reinsurance receivables on unpaid losses and loss
adjustment expenses
    
    
    679,775
    
    
    
    928,772Unpaid losses and loss adjustment expenses at end of period
    
    $
    1,494,816
    
    
    $
    1,699,707
 7. Debt
  Junior Subordinated Debentures
  Loans Payable
   13




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 8. Related Party Transactions
     Quarter Ended March 31,(Dollars in thousands)
    
    2008
    
    2007Ceded written premium
    
    $
    3,496
    
    
    $
    3,333Ceded losses
    
    
    797
    
    
    
    164
  9. Commitments and Contingencies
 Legal Proceedings
   14




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
  10. Share-Based Compensation Plans
  11. Earnings Per Share
   Quarter Ended March 31,(Dollars in thousands, except per share data)
    
    2008
    
    
    2007Income from continuing operations
    
    $
    7,447
    
    
    $
    22,434Discontinued operations
    
    
    (7
    )
    
    
    159Net income
    
    $
    7,440
    
    
    $
    22,593Basic earnings per share:Weighted average shares for basic earnings per share
    
    
    34,700,928
    
    
    
    37,112,783Income from continuing operations
    
    $
    0.21
    
    
    $
    0.61Discontinued operations
    
    
    0.00
    
    
    
    0.00Net income
    
    $
    0.21
    
    
    $
    0.61Diluted earnings per share:Weighted average shares for diluted earnings per
share
    
    
    34,953,554
    
    
    
    37,521,712Income from continuing operations
    
    $
    0.21
    
    
    $
    0.60Discontinued operations
    
    
    0.00
    
    
    
    0.00Net income
    
    $
    0.21
    
    
    $
    0.60
  Quarter Ended March 31,2008
    
    
    2007Weighted average shares for basic earnings per share
    
    
    34,700,928
    
    
    
    37,112,783Non-vested restricted stock
    
    
    62,247
    
    
    
    29,371Options and warrants
    
    
    190,379
    
    
    
    379,558Weighted average shares for diluted earnings per
share
    
    
    34,953,554
    
    
    
    37,521,712
  15




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 12. Segment Information
     Quarter Ended March 31, 2008:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Reinsurance
    
    
    Corporate
    
    
    TotalRevenues:Gross premiums written
    
    $
    93,292
    
    
    $
    5,770
    (1)
    
    $
    
    
    
    $
    99,062Net premiums written
    
    $
    80,668
    
    
    $
    1,296
    (1)
    
    $
    
    
    
    $
    81,964Net premiums earned
    
    $
    109,919
    
    
    $
    3,138
    (1)
    
    $
    
    
    
    $
    113,057Net investment income
    
    
    
    
    
    
    
    
    
    
    17,786
    
    
    
    17,786Net realized investment losses
    
    
    
    
    
    
    
    
    
    
    (1,070
    )
    
    
    (1,070
    )Total revenues
    
    
    109,919
    
    
    
    3,138
    
    
    
    16,716
    
    
    
    129,773Losses and Expenses:Net losses and loss adjustment expenses
    
    
    74,216
    
    
    
    2,434
    
    
    
    
    
    
    
    76,650Acquisition costs and other underwriting expenses
    
    
    36,641
    (2)
    
    
    1,554
    (3)
    
    
    
    
    
    
    38,195Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    3,934
    
    
    
    3,934Interest expense
    
    
    
    
    
    
    
    
    
    
    2,539
    
    
    
    2,539Income (loss) before income taxes
    
    $
    (938
    )
    
    $
    (850
    )
    
    $
    10,243
    
    
    
    8,455Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565Income before equity in net loss of partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,890Equity in net loss of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (443
    )Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,447Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,440Total Assets
    
    $
    2,069,307
    
    
    $
    658,990
    
    
    $
    
    
    
    $
    2,728,297
 
 (1)
    
    External business only, excluding business assumed from affiliates.(2)
    
    Includes excise tax of $550 relating to offshore cession.(3)
    
    Includes all Wind River Reinsurance expenses other than excise tax. 16




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (Unaudited)
 Quarter Ended March 31, 2007:
    
    Insurance(Dollars in thousands)
    
    Operations
    
    
    Reinsurance
    
    
    Corporate
    
    
    Eliminations
    
    
    TotalRevenues:Gross premiums written
    
    $
    145,602
    
    
    $
    6,934
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    152,536Net premiums written
    
    $
    130,558
    
    
    $
    3,497
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    134,055Net premiums earned
    
    $
    137,714
    
    
    $
    723
    (1)
    
    $
    
    
    
    $
    
    
    
    $
    138,437Net investment income
    
    
    
    
    
    
    
    
    
    
    18,868
    
    
    
    
    
    
    
    18,868Net realized investment gains
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    
    
    
    
    225Total revenues
    
    
    137,714
    
    
    
    723
    
    
    
    19,093
    
    
    
    
    
    
    
    157,530Losses and Expenses:Net losses and loss adjustment expenses
    
    
    81,377
    
    
    
    464
    
    
    
    
    
    
    
    
    
    
    
    81,841Acquisition costs and other underwriting
expenses
    
    
    42,504
    (2)
    
    
    709
    (3)
    
    
    
    
    
    
    (331
    )
    
    
    42,882Corporate and other operating expenses
    
    
    
    
    
    
    
    
    
    
    3,388
    
    
    
    176
    
    
    
    3,564Interest expense
    
    
    
    
    
    
    
    
    
    
    2,905
    
    
    
    
    
    
    
    2,905Income (loss) before income taxes
    
    $
    13,833
    
    
    $
    (450
    )
    
    $
    12,800
    
    
    $
    155
    
    
    
    26,338Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,074Income before equity in net income of
partnership
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,264Equity in net income of partnership, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    170Income before discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,434Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    22,593Total Assets
    
    $
    2,445,585
    
    
    $
    556,206
    
    
    $
    
    
    
    $
    
    
    
    $
    3,001,791
 
 (1)
    
    External business only, excluding business assumed from affiliates.(2)
    
    Includes excise tax of $422 relating to offshore cession.(3)
    
    Includes all Wind River Reinsurance expenses other than excise tax. 13. Supplemental Cash Flow Information
 Taxes and Interest Paid
 Quarter Ended March 31,(Dollars in thousands)
    
    2008
    
    2007Net U.S. federal income taxes paid
    
    $
    1,401
    
    
    $
    Interest paid
    
    
    4,195
    
    
    
    4,236
 14. Subsequent Events
   
 17




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Recent Developments
  Overview
     18




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 Critical Accounting Estimates and Policies
  Liability For Unpaid Losses And Loss Adjustment Expenses
     
    
    Paid Development method;
    
    Incurred Development method;
    
    Expected Loss Ratio method;
    
    Bornhuetter-Ferguson method using premiums and paid loss;
    
    Bornhuetter-Ferguson method using premiums and incurred loss; and
    
    Average Loss method.
   19




---



##### 



UNITED AMERICA INDEMNITY, LTD.
        20




---



##### 



UNITED AMERICA INDEMNITY, LTD.
       21




---



##### 



UNITED AMERICA INDEMNITY, LTD.
  Gross Reserves (1)(Dollars in thousands)
    
    Case
    
    
    IBNR (2)
    
    
    TotalInsurance Operations:Penn-America
    
    $
    185,690
    
    
    $
    395,110
    
    
    $
    580,800United National
    
    
    241,985
    
    
    
    520,181
    
    
    
    762,166Diamond State
    
    
    56,808
    
    
    
    84,573
    
    
    
    141,381Total Insurance Operations
    
    
    484,483
    
    
    
    999,864
    
    
    
    1,484,347Reinsurance Operations:Wind River Reinsurance
    
    
    415
    
    
    
    10,054
    
    
    
    10,469Total
    
    $
    484,898
    
    
    $
    1,009,918
    
    
    $
    1,494,816
 Net Reserves (1) (3)(Dollars in thousands)
    
    Case
    
    
    IBNR (2)
    
    
    TotalInsurance Operations:Penn-America
    
    $
    167,930
    
    
    $
    323,556
    
    
    $
    491,486United National
    
    
    56,830
    
    
    
    158,546
    
    
    
    215,376Diamond State
    
    
    40,250
    
    
    
    60,949
    
    
    
    101,199Total Insurance Operations
    
    
    265,010
    
    
    
    543,051
    
    
    
    808,061Reinsurance Operations:Wind River Reinsurance
    
    
    381
    
    
    
    6,599
    
    
    
    6,980Total
    
    $
    265,391
    
    
    $
    549,650
    
    
    $
    815,041
 
 (1)
    
    Excludes the effects of our intercompany pooling
arrangements and intercompany quota share reinsurance agreement.(2)
    
    Losses incurred but not reported.(3)
    
    Does not include reinsurance receivable on paid
losses or reserve for uncollectible reinsurance.    22




---



##### 



UNITED AMERICA INDEMNITY, LTD.
     Severity Change(Dollars in thousands)


    

    -10%
    
    -5%
    
    0%
    
    5%
    
    10%Frequency Change
    
    
    -5
    %
    
    $
    (11,114
    )
    
    $
    (7,473
    )
    
    $
    (3,833
    )
    
    $
    (192
    )
    
    $
    3,449-3
    %
    
    
    (9,735
    )
    
    
    (6,017
    )
    
    
    (2,300
    )
    
    
    1,418
    
    
    
    5,136-2
    %
    
    
    (9,045
    )
    
    
    (5,289
    )
    
    
    (1,533
    )
    
    
    2,223
    
    
    
    5,979-1
    %
    
    
    (8,355
    )
    
    
    (4,561
    )
    
    
    (767
    )
    
    
    3,028
    
    
    
    6,8220
    %
    
    
    (7,665
    )
    
    
    (3,833
    )
    
    
    
    
    
    
    3,833
    
    
    
    7,6651
    %
    
    
    (6,975
    )
    
    
    (3,104
    )
    
    
    767
    
    
    
    4,637
    
    
    
    8,5082
    %
    
    
    (6,285
    )
    
    
    (2,376
    )
    
    
    1,533
    
    
    
    5,442
    
    
    
    9,3513
    %
    
    
    (5,595
    )
    
    
    (1,648
    )
    
    
    2,300
    
    
    
    6,247
    
    
    
    10,1945
    %
    
    
    (4,216
    )
    
    
    (192
    )
    
    
    3,833
    
    
    
    7,857
    
    
    
    11,881
  Recoverability of Reinsurance Receivables
  23




---



##### 



UNITED AMERICA INDEMNITY, LTD.
 Investments
     Fair Value Measurements
  Goodwill and Intangible Assets
    24




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##### 



UNITED AMERICA INDEMNITY, LTD.
 Taxation
     Our Business Segments
    25




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##### 



UNITED AMERICA INDEMNITY, LTD.
  Quarter Ended March 31,(Dollars in thousands)
    
    2008
    
    
    2007Insurance Operations premiums written:Gross premiums written
    
    $
    93,292
    
    
    $
    145,602Ceded premiums written
    
    
    12,624
    
    
    
    15,044Net premiums written
    
    $
    80,668
    
    
    $
    130,558Reinsurance Operations premiums written:Gross premiums written
    
    $
    5,770
    
    
    $
    6,934Ceded premiums written
    
    
    4,474
    
    
    
    3,437Net premiums written
    
    $
    1,296
    
    
    $
    3,497Revenues:Insurance Operations
    
    $
    109,919
    
    
    $
    137,714Reinsurance Operations
    
    
    3,138
    
    
    
    723Corporate (1)
    
    
    16,716
    
    
    
    19,093Total revenues
    
    $
    129,773
    
    
    $
    157,530Expenses:Insurance Operations
    
    $
    110,857
    
    
    $
    123,881Reinsurance Operations
    
    
    3,988
    
    
    
    1,173Corporate (2)
    
    
    6,473
    
    
    
    6,293Subtotal
    
    
    121,318
    
    
    
    131,347Intercompany eliminations
    
    
    
    
    
    
    (155
    )Net expenses
    
    $
    121,318
    
    
    $
    131,192Income (loss) before income taxes:Insurance Operations
    
    $
    (938
    )
    
    $
    13,833Reinsurance Operations
    
    
    (850
    )
    
    
    (450
    )Corporate
    
    
    10,243
    
    
    
    12,800Subtotal
    
    
    8,455
    
    
    
    26,183Intercompany eliminations
    
    
    
    
    
    
    155Total income before income taxes
    
    $
    8,455
    
    
    $
    26,338Insurance combined ratio analysis: (3)Net losses and loss adjustment expense ratio
    
    
    67.8
    
    
    
    59.1Other underwriting expense ratio
    
    
    33.8
    
    
    
    31.0Combined ratio
    
    
    101.6
    
    
    
    90.1
 
 (1)
    
    Comprised of net investment income and net realized investment gains (losses).(2)
    
    Comprised of interest expense, outside legal fees, other professional fees, directors
fees, management fees, salaries and benefits for holding company personnel, and taxes
incurred which are not directly related to insurance or reinsurance operations.(3)
    
    Our insurance combined ratios are non-GAAP financial measures that are generally viewed
as indicators of underwriting profitability. The net losses and loss adjustment expense
ratio is the ratio of net losses and loss adjustment expenses to net premiums earned. The
underwriting expense ratio is the ratio of acquisition costs and other underwriting
expenses to net premiums earned. The combined ratio is the ratio of the sum of net losses,
loss adjustment expenses, acquisition costs, and other underwriting expenses to net
premiums earned. 26




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##### 



UNITED AMERICA INDEMNITY, LTD.
 Results of Operations
 Quarter Ended March 31, 2008 Compared with the Quarter Ended March 31, 2007
 Premiums
   Quarter Ended
    
    
    Quarter Ended
    
    
    Increase /(Dollars in thousands)
    
    March 31, 2008
    
    
    March 31, 2007
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    44,181
    
    
    $
    80,521
    
    
    $
    (36,340
    )United National
    
    
    24,931
    
    
    
    36,575
    
    
    
    (11,644
    )Diamond State
    
    
    24,179
    
    
    
    28,506
    
    
    
    (4,327
    )Total Insurance Operations
    
    
    93,291
    
    
    
    145,602
    
    
    
    (52,311
    )Reinsurance Operations:Wind River Reinsurance
    
    
    5,771
    
    
    
    6,934
    
    
    
    (1,163
    )Total
    
    $
    99,062
    
    
    $
    152,536
    
    
    $
    (53,474
    )
 
    
    Insurance Operations:
 
    
    Penn-America gross premiums written decreased $36.3 million primarily due to a
reduction of $14.4 million due to terminations of business that did not meet our
profitability requirements, a reduction of $12.3 million from catastrophe prone areas,
a reduction of $9.6 million due to price decreases in the aggregate of approximately
4.0%, and other market factors.
    
    United National gross premiums written decreased $11.6 million primarily due to a
reduction of $1.3 million from a terminated 100% reinsured property program, a decline
of $4.5 million in habitational business, and the remaining $5.8 million is due to
price decreases in the aggregate of approximately 5.0% and other market factors.
    
    Diamond State gross premiums written decreased $4.3 million primarily due to price
decreases in the aggregate of approximately 4.0% and other market factors.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance gross premiums written decreased $1.2 million primarily due
to the termination of a third-party treaty that did not meet our profitability
requirements.
  27




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##### 



UNITED AMERICA INDEMNITY, LTD.
  Quarter Ended
    
    
    Quarter Ended
    
    
    Increase /(Dollars in thousands)
    
    March 31, 2008
    
    
    March 31, 2007
    
    
    (Decrease)Insurance Operations:Penn-America
    
    $
    39,399
    
    
    $
    75,680
    
    
    $
    (36,281
    )United National
    
    
    21,347
    
    
    
    29,544
    
    
    
    (8,197
    )Diamond State
    
    
    19,918
    
    
    
    25,334
    
    
    
    (5,416
    )Total Insurance Operations
    
    
    80,664
    
    
    
    130,558
    
    
    
    (49,894
    )Reinsurance Operations:Wind River Reinsurance
    
    
    1,300
    
    
    
    3,497
    
    
    
    (2,197
    )Total
    
    $
    81,964
    
    
    $
    134,055
    
    
    $
    (52,091
    )
 
    
    Insurance Operations:
 
    
    Penn-America net premiums written decreased $36.3 million primarily due to the
reduction of gross premiums written noted above.
 
    
    United National net premiums written decreased $8.2 million primarily due to
reductions in non-owned auto business and habitational business.
 
    
    Diamond State net premiums written decreased $5.4 million primarily due to the
reduction of gross premiums written noted above.
 
    
    Reinsurance Operations:
 
    
    Wind River Reinsurance net premiums written decreased $2.2 million primarily due to
the non-renewal in 2008 of a third party reinsurance treaty.
  
    
    The decrease in net premiums earned from our Insurance Operations segment was
attributable to the decreases in net premiums written noted above, as well as to declines
in the 2007 net written premium of $490.5 million compared to the 2006 net written premium
of $560.5 million. The net unearned premium reserve at December 31, 2007 was $192.7
million compared to $244.9 million at December 31, 2006, a decrease of $45.8 million or
18.7%.
    
    The increase in net premiums earned from our Reinsurance Operations segment is primarily
due to business written in the latter part of 2007.
 Net Investment Income
  
    
    Gross investment income, excluding realized gains and losses, was $19.3 million for the
quarter ended March 31, 2008, compared with $20.4 million for the quarter ended March 31,
2007, a decrease of $1.1 million or 5.2%. The decrease was primarily due to reductions in
short-term interest rates.  In addition, our limited partnership investments did not make
any distributions in the first quarter of 2008. We had $0.0 million of gross investment
income from our limited partnership investments during the quarter ended March 31, 2008
compared to $0.3 million for the quarter ended March 31, 2007.  Excluding limited
partnership distributions, gross investment income for the quarter ended March 31, 2008
decreased 3.9% compared to the quarter ended March 31, 2007.
 28




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##### 



UNITED AMERICA INDEMNITY, LTD.
 
    
    Investment expenses were $1.5 million for each of the quarters ended March 31, 2008 and
2007.
  Net Realized Investment Gains (Losses)
  Net Losses and Loss Adjustment Expenses
   Acquisition Costs and Other Underwriting Expenses
  
    
    The decrease in our Insurance Operations segment is due to a $4.9 million decrease in
acquisition costs, which is primarily due to a decrease in commission expenses as a result
of the decrease in net premiums earned, and a $1.0 million decrease in other underwriting
expenses, which is primarily due to decreases in legal and consulting fees and a reduction
in our agents balances allowance.
 29




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##### 



UNITED AMERICA INDEMNITY, LTD.
 
    
    The increase in our Reinsurance Operations segment is primarily due to a $1.1 million
increase in acquisition costs and a $0.1 million increase in other underwriting expenses.
These increases are primarily due to an increase in commission expenses related to the
increase in net premium earned during the quarter ended March 31, 2008 compared to the
quarter ended March 31, 2007.
 Corporate and Other Operating Expenses
  Expense and Combined Ratios
   Interest Expense
  Income Tax Expense (Benefit)
  Equity in Net Income (Loss) of Partnership
  30




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##### 



UNITED AMERICA INDEMNITY, LTD.
 Discontinued Operations
  Net Income
  Liquidity and Capital Resources
 Sources and Uses of Funds
     31




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##### 



UNITED AMERICA INDEMNITY, LTD.
 Cash Flows
   
    
    the fact that we collect premiums in advance of losses paid;
    
    the timing of our settlements with our reinsurers; and
    
    the timing of our loss payments.
  
    
    a decrease in net premiums collected of $50.4 million, an increase in net losses paid of
$5.0 million, offset by a decrease in acquisition costs and other underwriting expenses of
$15.8 million;
    
    a decrease in net investment income collected of $0.4 million;
    
    an increase in net federal income taxes paid of $1.2 million.
  Liquidity
    Capital Resources
    32




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##### 



UNITED AMERICA INDEMNITY, LTD.
  Off Balance Sheet Arrangements
  Cautionary Note Regarding Forward-Looking Statements
    
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  33




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##### 



UNITED AMERICA INDEMNITY, LTD.
  Changes in Internal Controls
  34




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##### 



UNITED AMERICA INDEMNITY, LTD.
 
 PART II-OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Changes in Securities and Use of Proceeds
   ApproximateTotal Number of
    
    Dollar ValueShares Purchased
    
    of Shares ThatTotal Number
    
    Average
    
    as Part of Publicly
    
    May Yet Beof Shares
    
    Price Paid
    
    Announced Plan
    
    Purchased Under thePeriod (1)
    
    Purchased
    
    Per Share
    
    or Program
    
    Plan or Program (2)January 1-31, 2008
    
    
    93,054
    (3)
    
    $
    19.70
    
    
    
    88,362
    (4)
    
    $
    434February 1-29, 2008
    
    
    71,242
    (5)
    
    $
    19.23
    
    
    
    68,659
    (6)
    
    $
    49,680,261March 1-31, 2008
    
    
    154,200
    
    
    $
    19.03
    
    
    
    154,200
    (6)
    
    $
    45,746,974Total
    
    
    318,496
    
    
    $
    19.27
    
    
    
    311,221
    
    
    
    N/A
 
 (1)
    
    Based on settlement date.(2)
    
    Approximate dollar value of shares is as of the last date of the applicable month.(3)
    
    Includes 4,692 shares surrendered by employees as payment of taxes withheld on the
vesting of restricted stock.(4)
    
    Purchased as part of the repurchase authorization announced in December 2007.(5)
    
    Includes 2,583 shares surrendered by employees as payment of taxes withheld on the
vesting of restricted stock.(6)
    
    Purchased as part of the repurchase authorization announced in February 2008. 
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 6. Exhibits
 10.10*
    
    Amendment No. 4 to the United America Indemnity, Ltd. Share Incentive Plan (incorporated
herein by reference to Exhibit 10 of our Current Report on Form 8-K filed on January 31,
2008).
 35




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##### 



UNITED AMERICA INDEMNITY, LTD.
 31.1+
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14 (a) 15d-14 (a) of the
Securities Exchange of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2+
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) 15d-14 (a) of the
Securities Exchange of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1+
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2+
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 +
    
    Filed herewith.*
    
    Management contract or compensatory plan or arrangement.
 36




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##### 



UNITED AMERICA INDEMNITY, LTD.
 
 SIGNATURE
  UNITED AMERICA INDEMNITY, LTD.
RegistrantMay 12, 2008
    
    
    
    
    By:
    
    /s/ Kevin L. TateDate: May 12, 2008
    
    
    
    


    Kevin L. Tate
Chief Financial Officer
(Authorized Signatory and Principal Financial and
Accounting Officer)
 37